893.5151/9–2845: Telegram
The Secretary of State to the Chargé in China (Robertson)
1757. For Adler from the Secretary of the Treasury.
Part I
1. For your guidance in discussions with O. K. Yui and T. V. Soong (Refer our 1635 Oct 9), following summary of exchange of cables in [Page 1171] 1944 between Treas[ury] and Friedman on subject of blocked dollars is given below:
. . . . . . . . . . . . . .
2. In our meeting with Pei here on Oct 2, Treas[ury] explicitly stated to Pei general policy principle that Treas will not and cannot take measures designed to force American businessmen to use dollar-yuan rate which is not realistic, Treas[ury] emphasized to Pei that CN$500 to US$1 rate proposed by him was unrealistic and that, therefore, Treas[ury] would continue to permit sale of blocked dollars by American businessmen in China. Whereupon Pei gave his approval to both general policy principle and to its implementation, i. e., continuance of sale of blocked dollars in China, including newly liberated areas of China.
3. Please approach O. K. Yui and inform him of contents of p[ara-] g[rap]h 2 above and review for him content of his discussions with Friedman last year as shown in pgh 1 above. If he indicates that Chinese Govt does not intend to announce a more favorable rate than 500 to 1 for all business remittances and he objects to sale of blocked dollars to American business firms, you should intimate to him that this decision will invoke very strong dissatisfaction on part of American businessmen and will not be conducive to satisfactory Sino-American financial and commercial relations.
4. For reasons known to you, Treas has been most reluctant in past to urge Chinese to establish any particular exchange rate. Do you feel that Treasury should make specific recommendation to Chinese at this time? If so, please indicate reasons and what rate should be recommended. For your guidance on above, there follows below relevant excerpts from formal memorandum submitted by Pei to Treas under date of Aug 31:65 (We had sent you copy of this memorandum via diplomatic air pouch, but in view of your non-receipt of all our correspondence, copy of this memorandum is being carried to you by Consular officials going to Shanghai. Furthermore, we are checking with State Dept as to why you have not received any of our diplomatic air pouch communications.)
“Prices and exchange to be substantially stabilized first in terms of the existing currency, but a new currency to be issued as soon as sufficient progress has been made with fiscal measures and restoration of confidence to permit a successful currency reform. The value of the new currency unit to be a little lower than the prewar unit in terms of U. S. dollars, e. g., at US$0.25 instead of at about US$0.30 before the war. In determining the value of the new unit, the value of the Japanese and other competitive currencies to be taken into account.”
5. Pei explicitly indicated to us that it is intention of his govt [Page 1172] during the so-called immediate interim period of adjustment prior to establishment of new US$0.25 rate to fix exchange rates reflective of changing conditions.
Part II
6. With concurrence of State Dept, Treas will issue in near future general license removing practically all freezing control restrictions on current transactions with “specified blocked countries”. License, however, will not permit debits, unless authorized by some other license, to property or income thereon which on date of license is blocked by reason of interest of person within blocked country. Release of such blocked property will be handled separately at appropriate time for various countries.
7. Under this new license, powers of attorney, proxies, and other instructions, checks, drafts, securities, bills of lading, and other financial and commercial documents may be freely sent to specified blocked countries. Trade transactions between US or generally licensed trade area and specified blocked countries or between specified blocked countries may be freely financed through US banking facilities except where debits to existing blocked accounts are involved. No blocking restrictions will be applicable to dollar exchange accruing after date of license except in case of income on property blocked on date of license.
8. The term “specified blocked countries” will include not only such liberated countries as Belgium, Neth[erlands], Norway, Austria, etc., but also Italy, Bulgaria, Rumania, and Hungary. Only Germany, Japan, Sweden, Switzerland, Portugal, Spain, and Liechtenstein will be excluded from license except that consideration will be given to excluding China should Chinese Govt request us to do so. You should point out to Chinese Govt that liberated areas in East Asia including Hongkong, Singapore, Neth East Indies, etc., will be included in new license. Thus, in East Asia only Japan and possibly China would be excluded.
9. Unless you have objections, this matter should also be discussed immediately with Chinese Govt when you discuss Part I with O. K. Yui. We do not wish in any event to exclude China from new license unless we are requested to do so by Chinese Govt. If China is excluded from license we will have to explain this matter publicly on grounds that action was requested by Chinese Govt. You may wish in your discussions to tell O. K. Yui that unless suitable arrangements re exchange are made Treas will have no choice but to lift freezing controls on current transactions with China.
10. For your guidance on above, Pei has indicated that Chinese Govt wants us to continue our freezing controls in regard to China and in memo to Treas dated Aug 31, referred to above, expressed view [Page 1173] that “Freezing of Chinese assets abroad to be temporarily continued, and to be modified or abandoned only after consultation with China”. This statement was made, however, before we had decided to issue this new license and Pei, therefore, had no knowledge that compliance with his request would cause China to be treated differently from other liberated countries. We have not discussed new license with Pei.
11. Issuance of new general license planned for Nov 5 and cannot be delayed beyond Nov 12. China must either be included or excluded. Please therefore reply urgently. Should you decide not to take matter up with Chinese please submit your recommendations as to inclusion or exclusion of China from license. [Morgenthau.]
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